Could our friendly Facebook really bring down the economy?

Global economy killer? Yes, Facebook has now been added to my list of global macroeconomic triggers (deadly unpredictable black swans like the dot-coms in 2000 and subprimes in 2008) that the denial system driving the collective brain of American investors will simply tune out, till it’s too late. Till a crash takes the economy down again.

And, yes, it may take years. Or trigger in 2012. We watched the same kind of buildup to the 2008 crash for a few years in advance, as credible warnings were ignored. Yes, folks, Facebook is that dangerous to our economy and to the global economy.

You think I’m kidding? Not one bit. In fact Facebook is now one of my top 12 economy-killing triggers, any one of which could ignite a firestorm.

Facebook’s user success is a classic example of investor denial

In today’s new age of behavioral economics, all this extreme denial creates an illusion that misleads us by minimizing risk in our brains. Remember Treasury Secretary Hank Paulson’s classic remark before the 2008 meltdown, that he was witnessing the “best economy in my career.”

Seriously, you keep asking, does our beloved too-big-to-fail Facebook really have that kind of economy-killing power? You bet. At least one of our too-big-to-fail banks like J.P. Morgan has trillions in hard assets, hundreds of billions in capital, and huge leverage with the Fed and Treasury.

But Facebook is just the opposite: It is too big to succeed. The cash value is now in the pockets of the insiders who are cashing out with the IPO. The real “value” is in the minds of a billion friends, which is still a collective illusion that must be kept alive with future cash.

There’s a huge possibility Facebook will lose big in the aftermarket, and eventually our love affair will evaporate. That’s short-term thinking, like a day trader’s.

Here we’re more concerned with the big picture long-term issues, where American investors are blowing a newer, bigger bubble, a black swan that truly can bring down the economy — bigger than 2000 and 2008 combined.

Don’t say I didn’t warn you. Oh … I almost forgot: You can’t see or hear any warnings, blinded by love for Facebook.

Is Facebook the sock puppet of today’s new dot-com bubble?

When the honeymoon euphoria wears off (remember Kim Kardashian’s 57 days of bliss), and reality sets in, please remember the following remarks we just got from Andrew Stoltmann, a Chicago lawyer and investor advocate. And remember that 93% of the time Wall Street insiders and their pundits are happy talking and can’t be trusted, so listen to some facts and perspective from the other side:

The “Facebook IPO poses huge risks for retail investors. Facebook may have millions of users worldwide and plenty of investment sex appeal, but beyond the sizzle … I can virtually promise you there will be thousands of small investors that get burned bad on Facebook and lose money on the investment. How? Market orders like the ones so many investors made back “in the early 2000s “ by “people who made that error in … hot tech stocks at the time.”

Yes, another 2000 crash triggered by Facebook, the sock puppet of 2012.

But Stoltmann sees through the dark veil of denial that shields most of America:

“Virtually any slip-up in performance by Facebook and the stock will crater.” Yes, “crater,” as in bottom, crash, meltdown. “If Facebook is valued at $100 billion, its valuation would be 33 times its advertising revenue, compared with 5.5 times for Google. To sustain its value, Facebook would need to grow its revenues by 41% percent per year for the next five years. That is very hard to do for any company, especially one of Facebook’s size. … Even a minor hiccup in the business model could lead to significant losses for purchasers.”

More risks: Facebook “operates in an extremely competitive industry with many major, deep-pocketed rivals, including experienced, well-financed rivals like Google.” The fact is, investors forget “most of the gains people hear about when it comes to IPOs are not enjoyed by the retail investor buying the shares in the secondary market but rather the company founders and angel investors.”

Investors in denial about Facebook’s future as a public company

Now that $16 billion changed hands and Facebook has a thousand new millionaires, Stoltmann’s counting the days, expecting “thousands of retail clients with significant losses in Facebook in the next three months even though the IPO will be a resounding success for the company. … This could get very ugly.”

Remember, behavioral economics is the “psychology of denial,” but at some point reality will set in.

Paul Farrell writes the column on behavioral economics. He's the author of nine books on personal finance, economics and psychology, including "The...

Paul Farrell writes the column on behavioral economics. He's the author of nine books on personal finance, economics and psychology, including "The Millionaire Code," "The Winning Portfolio," "The Lazy Person's Guide to Investing." Farrell was an investment banker with Morgan Stanley; executive vice president of the Financial News Network; executive vice president of Mercury Entertainment Corp; and associate editor of the Los Angeles Herald Examiner. He has a Juris Doctor and a Doctorate in Psychology.

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